PIA Introduction to Public Affairs Management of Contracts and the Impact of Contracting on Public Policy

Privatization and Contracting Out: The Knowledge and Skills Base Focus of the Week:

Overview Concepts: New Public Management Principles: Social Services- Delivery Re-inventing Government- Customer vs. Citizen Subsidiarity- Decentralization Privatization: Private or Non-Profit Sector Contracting Out- Extending Governance out of Government A View from Canada Video A View from Canada

Privatization: In the U.S. and the World Definition: The process of divesting direct civil service responsibility for the provision of public services or the collection of revenues Focus here on the World View in the 1980s as defined by the U.S.

A South African View

Privatization: Grants and Contracts The Key to Understanding Contracting Out Prior to 1979: Focus of Contracts was Purchases and construction Before Social Services: “Block Grants” Now Social Services: Contracted Out or Categorical Grants (Tied Grants) Some Privatization is linked to Categorical Grants

Block Grants vs. Categorial Grants Community Development Block Grants Categorial Grants

Tendering is the procurement of acquisition of goods and/or services at the best possible total cost of ownership, in the correct quantity and quality, at the right time, in the right place for the direct benefit or use of governments, corporations, or local authorities, generally by a contract. Tendering also for grants.

Context of Privatization: The Reagan- Thatcher Revolutions Economic Reform and Structural Adjustment: a. IMF Stabilization and trade liberalization b. Currency reform, auctions-end of subsidies (end urban privileges) to end radical inflation

Next Target for Auction

The Reagan-Thatcher Revolutions c. Market prices for agriculture and industrial goods d. Deregulate the economy e. Most Importantly: Free Trade f. Domestic Changes followed International Reforms

One View of Free Trade

Conditionality and Privatization Conditionality- World Bank and UNDP and the “Management” SAPs- /Structural Adjustment Programs Focus on Policy and Administrative Reforms Conditionality- World Bank and UNDP and the "Management“ of Structural Adjustment Countries

One View of SAPs

Conditionalities Reform the Bureaucracy Decrease Size of Public Service Individual Consultants, Grantees and Contractors work with investments and the service/commercial sector Bridging and sectoral loans and grants major source of international involvement

Critics Europe South Africa

Principles of Privatization Key Conditionality- Privatization of the economy within a context of administrative Reform

Principles of Privatization a. divestiture b. contracting out c. liquidation d. sell off public private partnership shares

The View from the 1080s Redeux

Principles of Privatization e. International conditions for "good" bureaucrats, eg. World Bank Programs- special salaries for those on contract with the project f. Goal: Return to the recurrent budgeting process and balanced budget principles of “Neo-Orthodox Economists”

Milton Friedman, University of Chicago

The Fundamental Assumption: Private Provision of Services Use of conventional markets- No public sector involvement Contracts with public agencies- Collection of Garbage; foreign aid and technical assistance Monopoly Franchises: Hoover Dam; Cable Television; Amtrak

Hoover Dam

Private Provision of Services Management Contracts- Public Enterprises such as airlines and hotels Vouchers- private and charter schools Consumer Cooperatives- Food clubs

Acting Vice Principal showing their school vouchers.

Privatization “Ideal” Key to the provision of efficient and effective goods and services (Savas) Need for Exclusion User Fees, not taxes The use of tolls

E-ZPASS

Privatization “Ideal” Key to the provision of efficient and effective goods and services (Savas) Need to exclude the Collective Some would argue excluding “common pool goods” from privatization (Clean Air) Worthy goods (health, education, etc.) are not collective goods

Father of Privatization E.S. Savas is professor of public affairs at Baruch College, City University of New York

Reasons for Privatization Duncan Madsen Pirie, (born 24 August 1940). President Adam Smith Institute. High Production costs in Government Low levels of efficiency Featherbedded labor costs Pork Barrel Capital Allocations

Privatization- Reasons (Madsen Pirie) Low level consumer input Poor Maintenance and loss of service Inability of political leaders to impose cost control Free Riders

Free Rider Problem

Means of Privatization Liquidation Close down (Load Shedding) Divestiture Sell off in whole or in part government shares

Liquidation

Privatization Means Public-Private partnerships Commercialization Autonomy and user fees

Privatization Means Public Sector Reform Cutback the infamous 19% first cut (in Greece, at least) Transfer to a public service organization or union Contracting Out

The World Bank Formula, 2007 World Bank attempt to privatise Mumbai's water runs aground: Citizens reject report

Privatization Criticism Private sector and NGOs are not necessarily more effective and efficient than government agencies (Paul Nelson) Loss of Coverage for social services Rule of Structural Adjustment- lower health and education statistics

Making Fun of Government Radio Style Things Change, or Do They? AUDIO

10 Minute Break COFFEE

Privatization Criticism Can replicate private sector Conditions within government (Core of Reinventing Government argument--Osborne and Gabler) “Contracting In”- Government Agency provides services for or from another Agency, NGO or Private Sector (Generating Revenue) (USDA provides staff for USAID)

Options Under Reinventing Government

Privatization Criticism Reinventing Government Steering rather than Rowing Customer Driven Government Competition within Government and between units Key is decentralization--not privatization

Reinventing Government a world wide phenomenon (Korea)

Privatization Criticism Privatization enhances corruption Enhanced by cultural differences Gifts vs. Kickbacks Corruption as lobbying the Executive (Klitgaard)

Problems with Administrative Reform: International Examples 1. Departments buy and sell goods & services- statistics in Zaire/Congo or setting up “privatization networks” to acquire state properties. 2.Sub-economic salaries: offices, houses and telephones- buying soap and selling chickens. International salaries for essential workers (Consulting Practices)

Privatization in LDCs and MDCs

Problems with Privatization Reality- The absence of recurrent budgets in LDCs Activity (economy) driven by technical assistance projects the only game in town NGOs and for profit contractors and consulting firms take the jobs Result: Privatization means internationalization

A Pennsylvania View

Globalization: Chinese View

The Principles: Review Private Provision of Services: Use of conventional Markets: no public sector involvement (Purely private) Contracts with public agencies (Contracting Out)

The Principles: Review Monopoly Franchises Management Contracts Vouchers Consumer Cooperatives

U.S. Government Performance and Results Act of 1993

Boundary Valuation Problem (BVP): The Key to Privatization (additional constraints).

Service Delivery Systems and Categories of Service Delivery Issue of “size”: hard services or soft with capital or recurrent costs Macro--Physical Services Highways, Sewerage Main Lines, Electricity Deconcentrated or Privatized Micro--Physical Services Devolved or Delegated

Focus of Stimulus Spending-Jobs

Service Delivery Systems and Categories of Service Delivery Issue of “size”: hard services or soft with capital or recurrent costs Social Services--Health, Education or Community Development (such as Social Funds) Delegated or Contracted Grants and Sub-Grants to Non-Profits Investment or Production Privatized Public Private Partnerships

Note: Non-Profit Role in Service Delivery

Service Delivery Systems and Categories of Service Delivery Private Provision Use of conventional Markets Contracts with public agencies Monopoly Franchises Management Contracts Vouchers Consumer Cooperatives

Monopoly Franchises

The Revenue Model

Public Private Partnerships: A Historical Example German diplomats award Henry Ford, center, with their nation's highest decoration for foreigners, the Grand Cross of the German Eagle, in July 1938.

Discussion of Reading: New Authors William L. Riordon, Plunkitt of Tamany Hall Bessie Head, “The Collector of Treasures” Cameron Duodu, “The Tax Dodger”

William L. Riordon and Plunkitt George Washington Plunkitt (1842–1924) was a long-time State Senator in the state of New York representing the Fifteenth Senate District. He was especially powerful in New York City and he was part of what is known as New York's Tammany Hall machine. Boss Tweed VIDEO Boss Tweed William L. Riordon was a New York Journalist in 1905

Authors of the Week Born and educated in Ghana, Cameron Duodu started work on a general purpose magazine called New Nation in Ghana

Bessie Head, Bessie Emery Head was born in Pietermaritzburg South Africa, the child of a wealthy white South African woman and a black servant when interracial relationships were illegal in South Africa. She lived and wrote in Serowe, Botswana